A client of mine sent this news article today that I thought is worth mentioning. <Thanks Harold!> It doesn't come as a surprise given the bubble's bursting last year to hear about some buyers backing out from new condo projects currently on the market. From the condo projects I have reviewed over the years, I'm hearing of backouts of anywhere between 10%-15%. Of course some of those happened even when the market was doing well. So in this slow market, how are these condos holding up?
Here are some highlights from the article:
- At Olive 8, 180 of the 227 condos were presold, almost all by early 2007. 20% of those buyers have expressed concern about getting financing to close, and the developer is trying to help them.
- Fifteen Twenty-one presold 138 of its 143 units. 37 of those buyers have backed out. 75 units have already closed.
- Escala have sold 30% of their 270 homes. The developer hasn't heard from any buyers who want to back out.
- Vulcan Real Estate has pushed back the start of closings on its nearly finished Rollin Street Flats project (due to the new Fannie Mae guideline), where only one-quarter of the units have been sold. Vulcan recently dropped prices on eight of the 133 units in its 19-story, almost-done Enso project, where about 60 percent of the condos are under contract.
Here is another related article written by an Olive 8 buyer.
Related posts:
Fifteen Twenty One Tour
Fifteen Twenty One Opening Ceremony
Escala Hard Hat Tour
Escala Update
Olive 8 Hard Hat Tour
Olive 8 Update- Price Guarantee
Rollin Hard Hat Tour
The developer of the Escala must have very selective hearing or he is now suffering from dementia. I have tried to get out of my overpriced pre-buy but to no avail, and a few others that I know of have too.
I neither imagine a bank giving loans, nor the appraisals coming in near the sales price. We that are “Waiting” know that we must still buy or lose our earnest monies.
I imagine this to be like waiting on “Death Row.” I know I am going to lose money, so walking away might be the less expensive method?
Wendy, what are your thoughts?
I think that comes down to your estimation of the unit’s current value versus the amount of earnest money you put down.
If you think the difference in price is much higher than the amount of earnest money you put down, forfeiting the earnest makes economic sense.
On the other hand, if you really like the unit, would really like to live there asap, and the difference in value is not that big compared to the earnest money, then it makes sense to go forward. This is kind of like the folks who know they’re paying a premium for purchasing show tickets well in advance even if they know they could have gotten it cheaper on the day of the show.
One thing to keep in mind is even if you have to forfeit your earnest money, it’s not the end of the world. Putting a deposit before a project is ready is always like purchasing a call option. The pre-sales pricing is not guaranteed to be equal to or lower than the delivery value. Had the value of the unit appreciated between deposit and delivery (like it did for years pre-recession), you would have made instant equity multiples higher than your earnest money and the shoe would have been on the other foot.
Hope this helps.
I would move forward with the closing process before you forfeit your earnest money, even if you think the value of the unit is worth less than what you may have agreed in the pre-buy process. The reason for this is that if you do move forward, the appraisal will come in, demonstrating a TRUE market value for the unit as of today. A year or more ago, this wouldn’t have been the case as appraised values were highly inflated. More now than ever, appraisers are under strict scrutiny to deliver a true value to the lender, or, basically there will be hell to pay. If the unit’s value comes in much less than you agreed to originally pay, well then it would appear the DEVELOPER has a problem, right? You now have leverage to negotiate the price down to the current appraised value, or you threaten not to close and just walk away. This would ultimately hurt the developer because he/she would not have the poor sense to re-list the unit for a more-than-market value, knowing it would more-than-likely not exceed the current appraised value again. Let’s face it, the developers need these units to close ASAP, and they’ll get real with the price when they’re face with the current appraised values. Don’t just walk away until you know you’ve exhausted all your options.
@MD
What happens if the appraisal comes in at the seller’s price? I guess you can always back out the day of closing?
Kristen,
Exactly.. If the appraisal comes in at the seller’s price, then you will still have the ability to walk away, forfeiting all your earnest money. So, you’re no worse off than what you would have been by not giving it a try in the first place. I stand by the argument that you should NOT walk away until you have exhausted all your options.
And, if the appraisal does come in at the seller’s original asking price, then you may have a property that is worth the price they’re asking, which isn’t a bad thing. If you feel the appraisal that is being performed is not on par with today’s practices, you can always request an additional appraisal from your lender or from an independent bank all together. In many cases today, most lenders are requiring two appraisals before they move forward with the underwriting process. I know I would pay the $400 it costs to get a second opinion, especially if you have concerns about the honesty of the first appraisal. Just some advise… 🙂
Agree with MD. If you decide the earnest is much less than the difference between selling and what you think is the real market value, you can still play out your hand before letting go of the earnest.
You can try and negotiate with the seller prior to closing or wait to make your final decision near closing based on appraisal, new general market trends, and changes in recent comparables.
Tactics aside, at the end of the day, if the seller refuses to budge and the earnest is a lot less than the difference in value between asking price and what you are confident is the fair market value, letting go of the earnest is preferable to owning an asset you are convinced is worth less than what you’re paying.
I was planning to close at Olive 8. I am now waiting for my valuation but I have zero confidence in closing due to the market downturn. I am also unhappy with the finishes of the final product. It’s not up to the standard we were sold in 2007.
A group of us are discussing legal action at http://olive8.blogspot.com/
I am not planning on closing on Olive 8 at this point. I’ve spent quite a bit of time considering the purchase and have posted my analysis at http://www.inspiredstartup.com/my-23750-mistake-at-olive-8/
Hello Andy,
Nice response on your website. I am in the same position but different building. I decided to lose my earnest money but buy a current listing that is way below 2005 prices. There are great deals out there now but these new construction condos are too overpriced. All you gain in buying one of them is instant negative equity.
I sat down and did the math. I added my loss of the earnest money from the new construction condo and mentally added it to the price of the condo I bought. I am way ahead financially! Plus interest rates are so low too 🙂